Consumer Spending Is Keeping the Economy From Shrinking–But a New Survey of 10,000 Americans Says That Might End in 2020

Consumer Spending Is Keeping the Economy From Shrinking–But a New Survey of 10,000 Americans Says That Might End in 2020

Economic trends always seem to be a top topic for editors -- particularly when quarterly gross domestic product numbers are published. But if you ru

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Economic trends always seem to be a top topic for editors — particularly when quarterly gross domestic product numbers are published. But if you run a small business, should you pay attention to those breathless media reports or are you better off focusing on the spending patterns and trends of your current and potential customers?

Most of the time, the right answer is to spend time listening to customers about how satisfied they are with your products and whether there are big changes happening in their lives that could change the relevance of your products or create an opportunity for new products that satisfy emerging needs. And at the same time you are doing that, you should be tracking trends in your customer’s spending and buying behavior.

Every once in a while — roughly every eight to 10 years, however, the U.S. economy suffers from a recession. When there’s a recession, odds are very good that your customers will cut back on how much money they spend on your products. So it stands to reason that you would benefit from having early warning that a recession might soon be upon us.

That is why a Fortune survey of 10,372 adult Americans might be of interest. This survey  (published November 25) found that 66 percent of Americans think a recession will occur in the next 12 months.

However, there are two things about the survey that make me question whether their prediction will come true. First, is the split between Republicans (45 percent think a recession will happen in the next year) and Democrats (88 percent). This big difference makes me wonder whether the recession prediction by the survey respondents are a reflection of their spending plans or a reflection of how they hope the 2020 election will turn out. After all, if there is a recession in 2020, Trump’s reelection odds might be lower.

Secondly, the survey found that a fairly small percentage of consumers are cutting their spending. Specifically, only 10 percent said they had cut their budget in 2019; whereas 59 percent had not changed their spending between 2018 and 2019 and 29 percent had increased it. With most of the survey respondents maintaining or boosting their budgets in 2019, it is unclear what specific factors would lead to a significant reversal of the 2019 trend next year.

Overall U.S. economic growth depends heavily on whether the survey respondents will actually cut back on their spending in 2020. That’s because consumer spending accounts for roughly 70 percent of U.S. economic growth — that percent has increased considerably from 59.5 percent of the economy in 1969 to 68.1 percent of GDP in the third quarter of 2019, according to the Federal Reserve Bank of St. Louis.

And were it not for increased consumer spending, U.S. GDP would be shrinking. In the third quarter, U.S. gross domestic product growth grew at a paltry 1.9 percent. The business related components — exports and private investment were down 5.7 percent and 1.5 percent respectively, according to the Bureau of Economic Analysis. The good news was that consumer spending rose 2.9 percent — including a 5.5 percent increase in spending on goods.

I do not think this survey provides convincing evidence of a recession in 2020. However, I think that some industries — such as newspapers and many store-based retailers — are in recession and if your customers work in those industries, you are already suffering the consequences and should be seeking out customers from growing industries to replace the lost business.

I think it is always a good idea to set up listening posts that can provide you with early warning of a dropoff in spending by your customers. Here are some things you can do:

  • Identify which of your customers are leaders
  • Invite these customers into a customer council whom you communicate with periodically
  • Ask these lead customers probing questions: “What are the most significant changes occurring in your professional life that could reduce or increase your need for our products?” and “Are those changes becoming more or less intense? Why?” and “How soon would those changes cause you to reduce or decrease your spending on our products?”

Based on answers to these questions, you should be able to get a sense of whether those lead customers are likely to change their spending levels. They might inspire you to create new products or to seek out other customers — possibly in new geographies — to see if you can sustain your company’s growth. This would be more productive than worrying about an imminent recession due to the Fortune survey.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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